Real estate investment: Canada or US?

As mentioned here, the 3 biggest factor of real-estate value are: Location, Employment and Population.

If we factor in real-estate bubble, currency, interest rate risk it is safer to invest in the US.

Factor	Weight
Location	60.00%
Employment	20.00%
Population	20.00%
Location		Quebec (Can)	Main (US)
current valuation (revenue)	20.00%	1.35	1
currency valuation	25.00%	1.35	0.9
Foreign investment	10.00%	0.85	0.75
Interest rate risk	15.00%	1.4	0.9
Crash risk	15.00%	1.35	0.9
Life quality	15.00%	0.8	1.25
SUM	100.00%	1.225	0.9575
Employment
Education access	20.00%	0.65	1
Population education level	20.00%	0.75	1
Life quality	10.00%	0.8	1
Job market	50%	0.75	0.9
SUM	100.00%	0.735	0.95
Population
Population demography	50.00%	1.5	1
Immigraton	50.00%	0.75	0.75
SUM	100.00%	1.125	0.875
	Quebec (Can)	Main (US)
Score	1.107	0.9395

How to replace your cable bill by a house cleaner?

Since a couple of years, I want to get ride of the cable because the cost doesn't justify its usage but my wife still want to listen sometimes to traditional TV. I made a deal with her. I have exchanged the cable bills to a maid and air HDTV. I have invested CAN$163 to buy the material required to set-up a digital antenna and 4 hours to install it. It will take me only 4 months to recover my investment and then my saving will paid 50% of my maid bill per months. What do you need to buy to do the same? (special thanks the Steph)

You can get everything on amazon.

#1) Buy online the required material

1. RCA Dual Coax Wall Plate RG 6/RG 59 - White (home depot or amazon) CAN$ 6.93
2. RG6 Quad Shield Coaxial Cable  Sold by SaveOnMany (amazon)  CDN$ 24.07
3. RCA outdoor antenna preamplifier Sold by Amazon.com.ca, Inc. CAN$ 44.29
4. RCA Outdoor Antenna Optimized for Digital Reception  Sold by Amazon CAN$ 88.59

Total = $CAN 163.88

1)2)3)4)

#2) Install it

Final setup looks like this:

#3) Adjust it

Don't forget to adjust your antenna to get optimal reception -> Antenna angle ajustment. 

Million Dollar Journey blog

IF you are looking for great advices on how to "Building Wealth through Saving and Investing" you should look also at this blog http://www.milliondollarjourney.com/

I you don't have a pension back by tax payers, you have certainly notice the growing generation gap.
Knowing that the baby boomers are outnumbering us in number and cash, we should expect a clash at one point but by the time you need to financially educate yourself before the tsunami starts. Don't get trap in the red rat race to pay for other generation mistakes.

How to make your mortgage interest tax free in Canada

Deer high tax payer lovers,

As you might know, in the US, your house interest payments are tax free.

Unfortunately, rules aren't the same in Canada but.....you can do a double swap to make it tax free.

How? If you have investments outside your RSP :

• withdraw it and pay your mortgage
• then borrow back to money secured by a mortgage and put back the money in our investment portfolio

Revenue Canada says that all the interest you pay on money you borrowed to make an investments in tax deductible.

Isn't that wonderful?

Not sure you get it?

Basically, if you have non RSP investments and a mortgage you should pay your mortgage with your investments and reinvest from your line of credit. Bottom line, you still have the same amount of dept but your interest are tax-free. So, isn't that wonderful? Check the glob and mail article refer bellow. 

Reference: 

P49:  http://nownetworkjointventures.com/wp-content/uploads/2013/12/10-Secrets-CRA.pdf

Warnings:

• Make certain that the new mortgage was needed by the bank to secure your loan to buy investments
• Do not purchase the exact same investments you held prior to paying your mortgage. You should purchase new investments. 

More information: 

• Glob and mail: The Smith Manoeuvre: A Canadian mortgage tax-deductible plan (Published Tuesday, Sep. 03 2013, 6:00 AM EDT)
• My own advisor: Should I implement the Smith Manoeuvre?
• Line 221 - Carrying charges and interest expenses
• fees to have someone complete your return, but only if:
  • you have income from a business or property;
  • accounting is a usual part of the operations of your business or property; and
  • you did not use the amounts claimed to reduce the business or property income you reported (see Interpretation Bulletin IT-99, Legal and Accounting Fees);
• most interest you pay on money you borrow for investment purposes, but generally only if you use it to try to earn investment income, including interest and dividends. However, if the only earnings your investment can produce are capital gains, you cannot claim the interest you paid. For more information, contact us;

reading to financial freedom

• Why Financial education? read Rich dad's conspiracy of the rich:the 8 new rules of money
• How to Increase your Financial education? read Rich Dad's Increase your financial IQ: get smarter with your money
• How to better understand the 4 quadrants (Employee, Self-employed, Investor, Business)? read Rich Dad's CASHFLOW Quadrant: Rich Dad's Guide to Financial Freedom
• Where rich invest their money? Rich Dad's Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
• How to evaluate real estate investments? The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss
• How to create cashflow from stocks? The Stock Market Cash Flow: Four Pillars of Investing for Thriving in Today’s Markets

Evaluation of real estate cashflow opportunities in Canada?

After 2-3 month research, I found no real estate opportunity worth investing in in a cashflow perspective in Canada. All opportunities are minimum 30% overvalued. I used the method describe in this post: "How to evaluate a real estate opportunity?"

the herd will tell you:

• Its the market value
• Value will continue to increase...you will make a capital gain
• Canada population will grow (yes->Supply and demand biggest factors for real estate investments)
• Lot of studies are showing that real estate isn't overvalued (please do the math)
• Interest rates will stay low

Stop following the herd!
Capital gain is risky because you have to play the flipper buy low/sale high and most people can't do it and will be stuck to sale low to someone who has cashflow. 

To make an finance analogy, overvalued stocks are overvalued because they consider potential growth:

• Population growth
• Employment increase due to aging population & decrease canadian $ (canadian workforce is cheaper)

 
Canadian real-estate is overvalued because it is already considering lot of potential growth and future is risky because:

• Canadian $ depend too much on oil and everyone is trying to move away from it (canadian dollars will keep decreasing)...you should invest elwhere
• Interest rate won't stay low forever....which means your overvalued will become super overvalued
• Banks apply more then 20% cash down rule (don't recognize market value, remember Banks don't take risk, you take it all)

Bottom line: buying overvalued real estate force you to stay in the capital gain game to make your investment worth-full.
Recommendation: buy in the US because real estate value is more reasonable + US will most likely gain value against CAN dollar due to oil.

remainder:

There are FOUR profit centers in real estate:

• Income
• Appreciation
• Mortgage Pay-down
• Tax Benefits

Price are way less overvalued in the states but you have to consider the overhead of US tax. You need a Tax Payer ID (no need for an social assurance number) + you can use software such as taxact to fill your taxes.

How to evaluate a real estate opportunity?

The evaluation of a real estate property is simple:

1. Verify property income -> actual income
2. Verify property expenses -> adjust saler numbers + include vacancy
3. Determine net operating income (NOI) = income - expenses
4. Calculate the loan payment and your profit

1) Verify the property income

There is 3 types of income:

1. Actual income: what the property has generated in the last 3 months
2. Actual potential income: total income that could have been generated if 100% occupied
3. Future potential income: total income at today market rents. 

Don't forget to consider vacancy (missing income due to vacancy). 

2) Verify the property expenses

Concerning the expenses:

• Repairs and maintenance: it always increase (old = start higher)
• Insurance is a fast moving business and rates can vary widely 
• Replacement reserve: suspicious if 0 (usually under-estimated)

3) Determine the NOI

• The larger is better but don't forget to include your loan payment ;)
• profit = NOI-loan payments

4) Find the capitalization rate and valuation

Capitalisation Rate = NOI / Purchase price

OR

Offer price = NOI / capitalization rate 

capitalization rate = [7-12]

5) Calculate the loan payment and your profit cash on cash

profit = NOI - loan payments

cash on cash = profits / down payment

example:

http://www.remax-quebec.com/fr/multiplex-a-vendre-2255-226-rue-sheppard-ville-marie-central/12922399.rmx?fromsearch=formSearch_plex

saler price = 989K 

income estimate = 3K*4 -> 12K

expenses estimate = 7.2K (just taxes)

NOI = 5K

Offer price = 5K/.08 = 62.5K

saler capitalisation rate = 62.5K/989K=0.06 -> not 0.08

What should be the income to justify this valuation = 0.8*989k=79K

This property is definitely not a good investment. 

Supply and demand biggest factors for real estate investments

First, the market is more important than the property.

Second, value is drived by supply and demand.
Third, you should invest when supply = high and demand = low
 Forth,  The 3 drivers of supply and demand are:

1. Location (visibility, rare qty,...)
2. Employment 
3. Population

Recap:

When you are in a context of  supply = high and demand = low in a region, buy real estate at great location if population and employment should grow.

crypto currency (~bitcoins) = your kids saving

Cash-flow is important but ensuring your saved money doesn't get diluted by inflation is critical. Knowing your saving are most likely in a fiat money (money without intrinsic value + diluted), you need to consider non-fiat currency like goal or now crypto currency like bitcoins.
Crypto-currency are limited in creation by design, no one can decide to add more numbers like the FED. Crypto currency should be part of your saving for your kids.  

1) Safe way to generate your bitcoin address (public & private key) https://www.bitaddress.org (https://www.bitaddress.org)
2) How to check transfer https://blockchain.info/address/YOUR_PUBLIC_KEY

3) Where to buy BTC in canada https://quickbt.com

Links: 

• What is Bitcoin?
• Bloomberg: U.S. Agencies to Say Bitcoins Offer Legitimate Benefits (not a threat anymore)
• http://bitcredits.io/ (Montreal base bitcoin processor startup)
• Simplicity's impact on conversion (bitcoin = way simpler to pay then paypal)
• Exchange monitoring http://bitcoinwatch.com/ 
• Bitcoin security explained
• Demo payment with bitpay